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In 2015, the World Bank claimed that rich-country private capital could: (i) close the infrastructure services gap in poor countries, (ii) achieve the sustainable development goals, and (iii) make money by moving from "billions to trillions" of investment in poor-country infrastructure. Our framework distinguishes those poor countries in which the Bank's claim is tenable from those where it is not. For a given poor country, the framework reveals that investing a dollar in infrastructure is efficient if the social rate of return on infrastructure clears two hurdles: (a) the social rate of return on private capital in the poor country, and (b) the social rate of return on private capital in rich countries. Applying the framework to the only comprehensive, cross-country dataset of social rates of return on infrastructure indicates that in 1985 just 7 of 53 poor countries cleared the dual hurdles in both paved roads and electricity.

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Journal Articles
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Journal of Economic Literature
Authors
Camille Gardner
Peter Blair Henry
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No. 4
Authors
Nora Sulots
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Q&As
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The Belt and Road Initiative (BRI), launched by China in 2013, is a sweeping and ambitious development strategy aimed at enhancing global connectivity through the construction of extensive infrastructure networks across Asia, Europe, Africa, and beyond. While heralded as a potential catalyst for economic growth and cooperation, the BRI has also attracted a spectrum of criticisms. Concerns range from worries about the debt burdens placed on participating countries due to large-scale infrastructure investments to questions about transparency in project agreements and financing terms. Additionally, the initiative's geopolitical implications, potential environmental impacts, and uneven distribution of benefits have sparked debates about its long-term viability and impact on recipient nations.

CDDRL researchers Francis Fukuyama, the Olivier Nomellini Senior Fellow at the Freeman Spogli Institute for International Studies (FSI), and Michael Bennon, a research scholar and program manager for CDDRL’s Global Infrastructure Policy Research Initiative, have written widely about BRI’s challenges. Their latest essay, “China’s Road to Ruin: The Real Toll of Beijing’s Belt and Road,” published today in the September/October issue of Foreign Affairs, explores the current state of the BRI, the challenges it has created, and the reforms needed to protect the World Bank and International Monetary Fund (IMF) from the fallout of the BRI debt crisis.

Below, Fukuyama and Bennon share their insights on the potential implications of the BRI on global development finance, as well as suggestions for reforms that could bolster the ability of international financial institutions to manage any potential debt crises arising from these projects.

What are the key factors contributing to the risk of debt crises stemming from the Belt and Road Initiative? How significant is this risk in your assessment?


It is clear that fears from a few years ago about China using “debt trap diplomacy” to gain access to strategic assets were overblown. The real problem is that poorly conceived Chinese projects have created a new round of sovereign debt crises for developing countries and put the burden of resolving them on international institutions like the IMF. This diverts time and resources away from activities that would contribute to the long-term development of many poor countries.

Assessments of the current emerging markets debt crisis have tended to focus on the amount of BRI debt that exists in aggregate or for a particular country since it is such a large initiative. A much more important factor is transparency regarding the debts associated with BRI projects and the key terms of those debts. Without considerable transparency efforts, loans to large infrastructure projects are naturally opaque. They include many contingent liabilities for borrowing governments. These are liabilities that may be the responsibility of the borrowing government if they materialize. A lack of transparency over BRI debt also undermines the trust needed when a restructuring is necessary if other lenders become concerned that other “hidden” bilateral debts are not participating. So a key difference is not simply the debt crisis itself but the lack of trust among key bilateral lenders.

The real problem is that poorly conceived Chinese projects have created a new round of sovereign debt crises for developing countries and put the burden of resolving them on international institutions like the IMF.
Francis Fukuyama and Michael Bennon

How have the dynamics of global development finance changed with the emergence of large-scale initiatives like the BRI? What challenges does this pose to established financial institutions such as the World Bank and the IMF?


The BRI has impacted the World Bank and the IMF in very different ways. For the World Bank, it simply represents a very viable alternative for countries in need of bilateral loans for large infrastructure projects. For decades, the World Bank has developed and improved its Environmental and Social safeguards for infrastructure projects. These are intended to improve project outcomes, but they also clearly impose costs in funding and project delays for borrowers. With the emergence of the BRI, borrowers had an alternative source of financing without the World Bank’s same safeguards.

For the IMF, the challenge is clearly on assisting countries in credit distress and managing the restructuring process, and this has been playing out over the last few years. The IMF has developed programs to lend into and then “referee” debt restructurings in the past, but the present situation is very unique both financially and geopolitically.

Are there lessons that can be drawn from historical cases of emerging market debt crises that could inform strategies to prevent or manage such crises in the context of the BRI?


Historically the best “solution” for an emerging market debt crisis is a fast, deep restructuring that gives the distressed borrower the headroom to resume economic growth. That is the opposite of what is happening for the initial restructurings in the current emerging market debt crisis. There is very little trust among lenders, and those restructurings that have been negotiated have been underwhelming. Geopolitically speaking, the emerging market debt crisis currently underway is a bit unique.

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Francis Fukuyama and Michael Bennon share their insights on the potential implications of the Belt and Road Initiative (BRI) on global development finance, as well as suggestions for reforms that could bolster international stakeholders’ ability to manage any potential debt crises arising from BRI projects.

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Gerhard Casper Predoctoral Fellow in Rule of Law, 2023-2024
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Janka Deli is the Gerhard Casper Fellow in Rule of Law at the Center on Democracy, Development and the Rule of Law (CDDRL) and a JSD Candidate at Stanford Law School. Prior to becoming a CDDRL predoctoral fellow in 2023, she was a Data Science Scholar at Stanford Data Science for three years.

Janka conducts empirical research on the rule of law. She has developed a novel approach to rule of law impact studies. Janka’s current projects investigate how much the rule of law matters for firm value and international trade in the European Union, leveraging quantitative methods. Her knowledge in political science, economics, causal inference, statistics, and data science complements her comprehensive legal training.

Janka’s research has been generously supported by Stanford Data Science, the Office of the Vice Provost for Graduate Education, László Sólyom former Chief Justice of the Constitutional Court and former President of Hungary, the Rosztoczy Foundation, the American Association of University Women, the Hungary Initiatives Foundation, as well as the Dr. Elemér and Éva Kiss Scholarship Fund. As an acknowledgment of her outstanding academic performance at Stanford, she has received the Gerald J. Lieberman Fellowship and the Gerald Gunther Prize.

Janka received a JD degree (summa cum laude) along with a Certificate in Finance and Entrepreneurship from Pázmány Péter Catholic University in Budapest, Hungary, in 2017 and obtained her JSM degree at Stanford Law School in 2019.

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Cover of Enhancing Resilience in a Chaotic World: The Role of Infrastructure

The United States is currently undergoing a period of massive change in its economy, which is being spearheaded by three major pieces of federal infrastructure and industrial policy legislation: the Infrastructure Investment and Jobs Act (IIJA), the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act, and the Inflation Reduction Act (IRA). These new programs represent not only a massive investment in select parts of the US economy, but also significant changes in how the US invests and manages its economy through the use of industrial policy.

This chapter reviews these changes in the “how” of US industrial policy and federal investment and discusses two of the challenges that the US government faces as it attempts to orchestrate major changes to its economy. The first is a regulatory system designed to slow or otherwise constrain capital investment and growth. The second consists of unique aspects of US governance and its role in the global economy that will make state-led direct investment and other industrial policy programs challenging to implement.

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Chapter in Enhancing Resilience in a Chaotic World: The Role of Infrastructure, an ISPI-McKinsey & Company REPORT

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Michael Bennon
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Italian Institute for International Political Studies
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Academic economist and policy advisor Peter Blair Henry is to be jointly appointed to the Hoover Institution and the Freeman Spogli Institute for International Studies (FSI), both at Stanford University, effective September 2022. Henry will be named the Class of 1984 Senior Fellow at the Hoover Institution and a senior fellow at FSI.

The appointments mark Henry’s return to Stanford from the New York University (NYU) Stern School of Business, where he is the William R. Berkley Professor of Economics and Finance, and dean emeritus. The youngest person to serve as dean, he raised more funds in his tenure than any prior dean and established the NYU Breakthrough Scholars Leadership Program. 

Condoleezza Rice, director of the Hoover Institution, said: “We look forward to welcoming Peter back to Stanford. The impact of his distinguished research on the global economy, together with the integrity of his leadership, particularly in generating greater access to higher education, align with Hoover’s mission to better understand and address the challenges free societies and economies face, with the goal of improving the human condition.” 

The Hoover senior fellowship is made possible thanks to the generosity of six Stanford University class of 1984 alumni: Susan McCaw, Paul Barber, B.J. Beal, Jim Fleming, John Kleinheinz, and Tom Nelson.

I cannot believe our good fortune that we have managed to convince Peter to come back to FSI. Our students have no idea how lucky they will be to have Peter in the classroom.
Michael McFaul
FSI Director

Michael McFaul, director of the Freeman Spogli Institute, said: “I cannot believe our good fortune that we have managed to convince Peter to come back to FSI, where he was a senior fellow before leaving for NYU. His research interest fits perfectly with the mission of our Center for Democracy, Development, and Rule of Law, and our students have no idea how lucky they will be to have Peter in the classroom.” 

Henry has published groundbreaking articles in top economics journals that evaluate the impact of economic reform on asset prices, investment, wages, and economic growth. His current research on the global infrastructure challenge builds on the scholarship in his book Turnaround: Third World Lessons for First World Growth (Basic Books, 2013), which addresses economic efficiency as well as international relations, with the aim of increasing awareness of the interconnected fortunes of advanced and developing nations. 

Henry taught economics at Stanford from 1997 to 2009. He was a national fellow of the Hoover Institution from 2000 to 2001. At Stanford, his research was funded by an NSF CAREER Grant from 2001 to 2006, and in 2005 he became the first African American professor to earn tenure at the Stanford Graduate School of Business, where, from 2008 to 2010, he was the Konosuke Matsushita Professor of International Economics. Henry holds a PhD in economics (MIT, 1997), a BA in mathematics as a Rhodes Scholar (Oxford, 1993), and a BA with distinction, highest honors, and Phi Beta Kappa in economics (UNC Chapel Hill, 1991). 

A vice chair of the National Bureau of Economic Research and the Economic Club of New York, Henry received the 2021 Impactful Mentor Award from the American Economic Association for his founding and continued leadership of the PhD Excellence Initiative. A member of the President’s Commission on White House Fellowships from 2009 to 2017, he also received the Foreign Policy Association Medal in 2015, the Carnegie Foundation Great Immigrant Award in 2016, and the Council on Economic Education Visionary Award in 2018.

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Hakeem Jefferson
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Welcoming Hakeem Jefferson to CDDRL

Jefferson, an assistant professor of political science at Stanford University, will join the center as a faculty affiliate.
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Kathryn Stoner and Leopoldo López
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Venezuelan opposition leader calls on students to fight for global freedom

Leopoldo López expressed fear about the global rise of a “network of autocracies." He encouraged Stanford students to champion democracy and freedom across the globe.
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Nonviolence
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New Continuing Studies Course on Nonviolence with The World House Project's Clayborne Carson

Enrollment is open now for "Nonviolence and Human Rights in the World House: Realizing Martin Luther King Jr.’s Vision," which will run Thursdays from April 14 through June 2.
cover link New Continuing Studies Course on Nonviolence with The World House Project's Clayborne Carson
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A former senior fellow at the Center on Democracy, Development and the Rule of Law, Henry is reprising his roles at FSI and the Hoover Institution to continue his groundbreaking research on economic reforms and the global economy.

Encina Hall
616 Jane Stanford Way
Stanford, CA 94305-6055

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Research Scholar
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Michael Bennon is a Research Scholar at CDDRL for the Global Infrastructure Policy Research Initiative. Michael's research interests include infrastructure policy, project finance, public-private partnerships and institutional design in the infrastructure sector. Michael also teaches Global Project Finance to graduate students at Stanford. Prior to Stanford, Michael served as a Captain in the US Army and US Army Corps of Engineers for five years, leading Engineer units, managing projects, and planning for infrastructure development in the United States, Iraq, Afghanistan and Thailand. 

Program Manager, Global Infrastructure Policy Research Initiative
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This event is co-sponsored by the Arab Studies Institute

ABSTRACT

This talk is based on the speaker's new book Cleft Capitalism: The Social Origins of Failed Market Making in Egypt (Stanford University Press, 2020). Egypt has undergone significant economic liberalization under the auspices of the International Monetary Fund, the World Bank, USAID, and the European Commission. Yet after more than four decades of economic reform, the Egyptian economy still fails to meet popular expectations for inclusive growth, better standards of living, and high-quality employment. While many analysts point to cronyism and corruption, this study finds the root causes of this stagnation in the underlying social and political conditions of economic development. It offers a new explanation for why market-based development can fail to meet expectations: small businesses in Egypt are not growing into medium and larger businesses. The practical outcome of this missing middle syndrome is the continuous erosion of the economic and social privileges once enjoyed by the middle classes and unionized labor, without creating enough winners from market making. This in turn set the stage for alienation, discontent, and, finally, revolt. With this book, Adly uncovers both an institutional explanation for Egypt's failed market making, and sheds light on the key factors of arrested economic development across the Global South.

SPEAKER BIO

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Amr Adly is an assistant professor in the department of political science at The American University in Cairo. He worked as a non-resident scholar at the Carnegie Middle East Center. He has also worked as a project manager at the Center on Democracy, Development, and the Rule of Law at Stanford University, where he was a postdoctoral fellow. Adly received his Ph.D. from the European University Institute in Florence. He is also author of Cleft Capitalism: The Social Origins of Egypt’s Failed Market Making (Stanford University Press, 2020) and State Reform and Development in the Middle East: The Cases of Turkey and Egypt (Routledge, 2012). He has been published in a number of peer-reviewed journals, including Geo-forum, Business and Politics, Turkish Studies, and Middle Eastern Studies. Adly is also a frequent contributor to print and online news sources.

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Visiting Scholar, Ukrainian Emerging Leaders Program 2017-18
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Dmytro Romanovych works at the Reform Delivery Office for the Cabinet of Ministers of Ukraine. With a team of project managers, they work directly with the prime minister by facilitating reforms, monitoring progress and coordinating across ministries. The Reform Delivery Office focuses on issues of public administration reform, business climate improvement, industrial policy and innovations, healthcare reform and privatization. Romanovych is also an advisor to the Minister of Economy, and is responsible for deregulation and improving the business climate in Ukraine. In addition, he is an economic expert in the largest NGO coalition in Ukraine, the Reanimation Package of Reforms, which is the most influential non-governmental reform advocate in the country.

Romanovych's key responsibility is to ensure the Cabinet of Ministers and Verkhovna Rada (Ukraine’s Parliament) both adopt Ukraine's deregulation agenda. This includes developing the concept of the deregulation documents, involvement and coordination of the stakeholders, passing documents through approval process, public promotion, etc. Due largely in part to its deregulation reform, the Ministry of Economic Development and Trade was recognized as a leader in the reform process in comparison with other ministries Over the last year, Romanovych has organized several high-level meetings that have resulted in the adoption of 30 deregulation documents, the abolishment of 500 regulations and the passing of draft laws on state control system reform by the Verkhovna Rada. Prior to this he was among the creators of the Better Regulation Delivery Office institution, which is now is the key think-tank and task force for business climate improvement and restructuring of the government policy-making process. Romanovych graduated from Kharkiv State Economic University with a Master’s Degree in Economic Cybernetics.

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Former Adjunct Lecturer
Former Research Affiliate
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Jerry Kaplan is widely known as an Artificial Intelligence expert, serial entrepreneur, technical innovator, educator, bestselling author, and futurist.

A renowned Silicon Valley veteran, Jerry Kaplan founded several storied technology companies over his 35-year career, two of which became public companies. Kaplan may be best known for his key role in defining the tablet computer industry as the founding CEO of GO Corporation in 1987. Prior to GO, Kaplan co-founded Teknowledge, Inc., one of the first Artificial Intelligence companies to commercialize Expert Systems, which went public in 1986. In 1994, Kaplan co-founded Onsale, Inc., the world's first Internet auction website, which went public in 1997. In 2004, he pioneered the emerging market for social games by starting Winster.com, where he served as CEO for eight years.

Jerry Kaplan is a former Lecturer and Research Affiliate at CDDRL, a Visiting Lecturer in Computer Science, and a Fellow at the Center for Legal Informatics at Stanford University Law School. His research and teaching focusses on the social and economic Impact of Artificial Intelligence. He is an inventor on more than a dozen patents, and has published over twenty refereed papers in academic journals and conference proceedings. Kaplan holds a PhD in Computer and Information Science from the University of Pennsylvania, and a BA in History and Philosophy of Science from the University of Chicago.

Jerry Kaplan is the author of three books, including the best-selling classic "Startup: A Silicon Valley Adventure" (Houghton-Mifflin).  Selected by Business Week as one of the top ten business books of 1995, Startup was optioned to Sony Pictures.  "Humans Need Not Apply: A Guide to Wealth and Work in the Age of Artificial Intelligence” (Yale University Press) was honored by The Economist as one of the top ten science and technology books of 2015. His latest book, "Artificial Intelligence: What Everyone Needs to Know" (Oxford University Press) was a 2016 Amazon new release #1 best seller in Artificial Intelligence.

Jerry Kaplan has been profiled in The New York Times, The Wall Street Journal, Forbes, Business Week, Red Herring, and Upside. He is a frequent commentary contributor to major newspapers and magazines. He received the 1998 Ernst & Young Emerging Entrepreneur of the Year Award, Northern California; served on the Governor's Electronic Commerce Advisory Council Member under Pete Wilson, Governor of California (1999); and received an Honorary Doctorate of Business Administration from California International Business University, San Diego, California (2004). 

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The Program on Arab Reform and Democracy (ARD) at Stanford’s Center on Democracy, Development, and the Rule of Law (CDDRL) is pleased to welcome Egyptian economist Samer Atallah as a visiting scholar for the 2015-16 academic year. Atallah has taught economics at the American University in Cairo (AUC) since 2011, and his work focuses on development economics and political economy of democratization. He is a leading contributor to debates on economic public policy in Egypt, and previously served as an advisor to the 2012 presidential campaign of Abdel-Moneim Abul-Fettouh. He holds a PhD in Economics from McGill University and a Masters Degree in Engineering from University of California, Berkeley. His research on the Arab world has received the support of the Arab Council for Social Sciences and the Economic Research Fund, and spans a wide range of areas, including; education, electoral behavior, public opinion, trade policies, and political institutions in resource dependent economies.

During his residency at CDDRL, Atallah will work on a series of publications examining salient questions in the political economy of the Arab World, including the impact of trade and capital flows on governance in Egypt and Tunisia, and the relationship between education and wealth inequality in Egypt. Atallah’s fellowship is generously funded by a grant from the Carnegie Corporation to support scholars from the Arab world. In the following interview, Atallah discusses his current research projects and their relevance to important public policy debates.

 

What are your research goals and priorities during your residency at CDDRL?

First of all, I would like to say that I am extremely delighted to be here and excited at this valuable opportunity to collaborate with distinguished scholars at CDDRL and Stanford University, which promises to be a nourishing environment for my research. 

My research agenda during my residency here at CDDRL includes working on two projects, both of which are related to broader questions of democratization and development. This first one is a comprehensive theoretical and empirical study investigating how political and economic institutions evolve as economies become integrated in the global economy. I am interested in understanding how trade and capital flows impact institutions - in the economic sense of the term - and the implications of that impact on political change. For instance, the experiences of economic liberalization in countries like Egypt and Tunisia had unquestionable consequences on the distribution of wealth within their respective societies. Economic liberalization policies had equally important effects on the performance and evolution of their legal, economic governance and political institutions. My own research seeks to investigate how these institutional changes have evolved and the impact of these processes on political change.  The second project is an empirical study examining the relationship between wealth inequality and educational inequality in Egypt.

 

In what ways do your projects speak to contemporary debates on the origins and trajectories of the Arab uprisings?

I would argue that the divergence in outcomes across the various uprisings in Arab region cannot be understood without seriously thinking about the different historical evolution of political and economic institutions in these countries. These institutions impact the functioning of the economy, its growth, and the social inclusiveness of that growth—factors that were very pertinent to the popular mobilization that advanced the post-2010 uprisings. Certainly these institutions are in part the product of how the economy is managed in a given country in the short-run. At the same time, they are the result of long-term external and internal factors that we need to investigate and understand.

A case in point is the bureaucratic apparatus in Egypt. That sizable bureaucracy is the outcome of a long-standing policy of guaranteed employment, which the government had adopted in the 1960s to secure political support. Whereas economic liberalization policies adopted by President Anwar al-Sadat in the 1970s shrunk the economic role of the state, the size of the bureaucracy, nevertheless, increased significantly. Thus, the question we confront as researchers is why have these institutions remained stagnant and shielded from change despite the fact the nature and priorities of the economy have shifted. This is a major concern in my own research.

 

What lessons, if any, does your work offer policy-makers involved in the areas of economic and human development?

My second project on inequality and education speaks to one of the central factors that have animated the post-2010 uprisings in the Arab world, namely economic inclusion. In the context of Egypt, educational inequality has contributed greatly to the huge disparities in income and wealth in the country. Exacerbating and reinforcing these disparities is an intergenerational dependency in educational attainment—that is, children of uneducated parents are highly likely to remain uneducated, and by implication, economically underprivileged. This is an area that leaves a lot of room for policy interventions.

But such interventions must be grounded in a better understanding of the causes of this dependency and why it persists. Toward that end, my research seeks to investigate how the type and range of assets in a given household affect schooling and education decisions. Other key determinants of these decisions include access to credit, spatial distribution of educational facilities, and volatility of household income. With a sufficiently nuanced understanding of the problem at hand, all of these factors present potential areas for policy interventions to alter the incentives for school enrolment and quality of education delivery. Such interventions could potentially lead to a better distribution of education and income in the long run.

 

What are the potentially important research questions that address Arab reform and democracy?

I believe the recent upheavals in the Arab world have pushed us to re-evaluate our understanding of the underlying reasons and implications of political and economic change. This has opened up a multitude of lines of inquiry related to the economic incentives and costs of political change. One such endeavor entails an ambitious effort to compare the evolution of social movements, economic policies, and political structures in the Arab world with other regions of the world. For instance, I think we could draw multiple parallels between the Arab experience and that of many Latin American countries, especially with respect to the role of military institutions, the impact of economic liberalization, social inequality, and civil society movements. Having said that, there is also a lot of work that needs be done in understanding and analyzing the divergent outcomes of the Arab uprisings.

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